Tuesday, February 17, 2015

HM Revenue & Customs has defeated in the Court of Appeal a tax avoidance scheme which made false investments into Disney films. Eclipse 35 LLP claimed to trade in film rights but has been defined as a tax avoidance scheme by UK courts. HMRC said an estimated £635m in tax has been "protected" by the scheme's defeat. Investors into the scheme borrowed money which qualified for interest relief claims because it was intended for trade use. Eclipse used the money to acquire the rights to Disney films before sub-leasing them back to a different Disney entity for a guaranteed income stream.

In reality, the borrowed money earned interest, which was then filtered through Eclipse as a tax-efficient trading transaction to pay the interest on investors’ loans. The Court of Appeal upheld its earlier tribunal decision, which ruled that investors were not eligible for interest relief and profits from Eclipse 35 because the partnership was not trading. There were 31 Eclipse partnerships that ran for between 11 and 20 years, but Eclipse 35 is the first to be taken into litigation.